NEW YORK (TheStreet) -- Goldman Sachs (GS - Get Report) is leading Wall Street's most ambitious effort yet to create an instant messaging platform that would take direct aim at Bloomberg, which dominates the Wall Street IM business. The move, however, also comes with significant risk.
Goldman Sachs and a consortium of large investment banks are working on a deal to buy encrypted messaging service Perzo and create an open communications platform for traders, salespeople and support staff. Goldman is contributing its own messaging technologies to the new venture, which ultimately may count over a dozen financial services firms as minority investors and mirror the initial ownership structures of Wall Street creations such as Markit (MRKT) , BATS Global Markets, Visa (V) and MasterCard (MA) .
Those bank-owned financial services companies -- while successful -- have drawn scrutiny. Markit, a publicly traded data provider, is being investigated by regulators for colluding with its owners to control the credit default swap market. BATS and other high-speed trading venues are accused of trading ahead of customers' buy and sell orders. And in 2012, 13 large banks paid $7.25 billion to settle an antitrust probe into their ownership of Visa and MasterCard.
Goldman's project takes aim at Bloomberg, which dominates instant messaging on Wall Street with its Instant Bloomberg chat function. Salespeople use IB, as it's usually called, to negotiate prices. Traders use it to execute deals. As a result, the tool is often seen as the single feature that makes Bloomberg Terminals irreplaceable for financial services firms, justifying the $20,000-a-year subscription.
Last year, Thomson Reuters and Markit teamed up to create a messaging service that had the support of most large banks. The venture, however, has done little to even slow down growth for the Bloomberg service.
Usage of IB has risen in the past year, and Bloomberg continues to add net subscribers to its terminals. Total terminal customers have grown to over 320,000 subscribers from over 315,000 subscribers in 2013.
While messaging among Wall Street banks and their customers will be the major initial focus of the Goldman-led messaging service, to be called Symphony Communications Services, the effort could also morph into new innovations surrounding trading, analytics and financial applications.
What to Watch For
Bloomberg in many ways has towered over a dramatically changing Wall Street landscape. Efforts by the firm's biggest customers to chip away at its business are watched closely by industry insiders. Since the financial crisis, Bloomberg terminals have been eyed as an expense that banks want to cut to meet tighter times. But Bloomberg's resilient growth indicates the terminal continues to justify its cost.
When the financial crisis struck, it exposed negative and even criminal practices in opaque markets where instant messaging is a primary tool of communication and trade execution. Global regulatory probes into foreign exchange and interest rate swap trading have often hinged on traders' instant messages, forcing banks to get a better handle on their communications.
Last year, as competitors like the Thomson Reuters-Markit venture sprouted up, Bloomberg launched a suite of new tools to give firms better control of their traders on the terminal. The company also pitched itself as a blind and independent manager of instant messages, which are required to be saved and can be subpoenaed by regulators.
Will Customers Buy In?
Messaging tools have little use if buy-side firms in the mutual fund, hedge fund and private equity space don't adopt them. And customers have always had a decidedly skeptical relationship with banks. Giving greater control to banks, historically, has generally been met with significant resistance and has been one the reasons for Bloomberg's consistent rise.
The Symphony Communications project appears to have the backing of BlackRock (BLK - Get Report) , the world's largest asset manager, with over $4 trillion in assets under management. That support may underscore the seriousness of the effort, and the prospect for it to go well beyond instant messaging.
Goldman Sachs, Bloomberg and BlackRock declined to comment.
-- Written by Antoine Gara in New York